With
help from their friends in high places—the White House and
the New York State Capitol, to name two—energy industry
profiteers got their deregulation, and gave back an electricity
system doomed to failBy
Greg Palast

THURSDAY,
AUG. 14—I can tell you all about the ne’er-do-wells that
put out our lights tonight. I came up against these characters—the
Niagara Mohawk Power Company—some years back. You see, before
I was a journalist, I worked for a living, as an investigator
of corporate racketeers. In the 1980s, “NiMo” built a nuclear
plant, Nine Mile Point, a brutally costly piece of hot junk
for which NiMo and its partner companies charged billions
to New York State’s electricity ratepayers.

To pull off this grand theft by kilowatt, the NiMo-led consortium
fabricated cost and schedule reports, then performed a Harry
Potter job on the account books. In 1988, I showed a jury
a memo from an executive of one partner, Long Island Lighting,
giving a lesson to a NiMo honcho on how to lie to government
regulators. The jury ordered LILCO to pay $4.3 billion and,
ultimately, put them out of business.

And that’s why, if you’re in the Northeast, you’re reading
by candlelight tonight. Here’s what happened. After LILCO
was hammered by the law, after government regulators slammed
Niagara Mohawk and dozens of other book-cooking, document-doctoring
utility companies all over America with fines and penalties
totaling in the tens of billions of dollars, the industry
leaders got together to swear never to break the regulations
again. Their plan was not to follow the rules, but to eliminate
the rules. They called it “deregulation.”

It was like a committee of bank robbers figuring out how
to make safecracking legal.

But they dared not launch the scheme in the United States
of America. Rather, in 1990, one devious little bunch of
operators out of Texas, Houston Natural Gas, operating under
the alias “Enron,” talked an over-the-edge free-market fanatic,
Britain’s Prime Minister Margaret Thatcher, into licensing
the first completely deregulated power plant in the hemisphere.

And so began an economic disease called “regulatory reform”
that spread faster than SARS. Notably, Enron rewarded Thatcher’s
energy minister, one Lord Wakeham, with a bushel of dollar
bills for “consulting” services and a seat on Enron’s board
of directors. The English experiment proved the viability
of Enron’s new industrial formula: that the enthusiasm of
politicians for deregulation was in direct proportion to
the payola provided by power companies.

The power elite first moved on England because they knew
Americans wouldn’t swallow the deregulation snake oil easily.
The United States had gotten used to cheap power available
at the flick of switch. This was the legacy of Franklin
Roosevelt who, in 1933, caged the man he thought to be the
last of the power pirates, Samuel Insull. Wall Street wheeler-dealer
Insull created the Power Trust, and, six decades before
Ken Lay, faked account books and ripped off consumers. To
frustrate Insull and his ilk, FDR gave us the Federal Power
Commission and the Public Utilities Holding Company Act,
which told electricity companies where to stand and salute.
Detailed regulations limited charges to real expenditures
plus a government-set profit. The laws banned “power markets”
and required companies to keep the lights on under threat
of arrest—no blackout blackmail to hike rates.

Of particular significance as I write here in the dark is
that regulators told utilities exactly how much they had
to spend to ensure that the system stayed in repair and
the lights stayed on. Bureaucrats crawled along the wire
and, like me, crawled through the account books, to make
sure the power execs spent customers’ money on parts and
labor. If they didn’t, we’d whack ’em over the head with
our thick rule books. Did we get in the way of these businessmen’s
entrepreneurial spirit? Damn right we did.

Most important, FDR banned political contributions from
utility companies: No “soft”money, no “hard”money, no money
period.

But then came George the First. In 1992, just prior to his
departure from the White House, President Bush Senior gave
the power industry one long, deep-through-the-teeth kiss
good-bye: federal deregulation of electricity. It was a
legacy he wanted to leave for his son, the gratitude of
power companies, which ponied up $16 million for the Republican
campaign of 2000, seven times the sum they gave Democrats.

But
Poppy Bush’s gift of deregulating of wholesale prices set
by the feds only got the power pirates halfway to the plunder
of Joe Ratepayer. For the big payday, they needed deregulation
at the state level. There were only two states, California
and Texas, big enough and Republican enough to put the electricity
market con into operation.

California fell first. The power companies spent $39 million
to defeat a 1998 referendum pushed by Ralph Nader that would
have blocked the dereg scam. Another $37 million was spent
on lobbying and lubricating the campaign coffers of legislators
to write a lie into law: In the deregulation act’s preamble,
the Legislature promised that deregulation would reduce
electricity bills by 20 percent. In fact, when San Diegans
in the first California city to go “lawless” looked at their
bills, the 20-percent savings had become a 300-percent jump
in surcharges.

Enron circled California and licked its lips. As the number-one
lifetime contributor to the George W. Bush campaign, it
was confident about the future. With just a half dozen other
companies, it controlled at times 100 percent of the available
power capacity needed to keep the Golden State lit. Their
motto: “Your money or your lights.” Enron and its comrades
played the system like a broken ATM machine, yanking out
the bills. For example, in the shamelessly fixed “auctions”
for electricity held by the state, Enron bid, in one instance,
to supply 500 megawatts of electricity over a 15 megawatt
line. That’s like pouring a gallon of gasoline into a thimble—the
lines would burn up if they attempted it. Faced with blackout
because of Enron’s destructive bid, the state was willing
to pay anything to keep the lights on.

And the state did. According to Dr. Anjali Sheffrin—an economist
with California Independent System Operator Corporation,
which directed power movements—between May and November
2000, three power giants physically or “economically” withheld
power from the state and concocted enough false bids to
cost the California customers more than $6.2 billion in
excess charges.

It took until Dec. 20, 2000, with the lights going out on
the Golden Gate, for President Bill Clinton, once a deregulation
booster, to find his lost Democratic soul and impose price
caps in California and ban Enron from the market.

But the light-bulb buccaneers didn’t have to wait long to
put their hooks back into the treasure chest. Within 72
hours of moving into the White House, while he was still
sweeping out the inaugural champagne bottles, George Bush
the Second reversed Clinton’s executive order and put the
power pirates back in business in California. Enron, Reliant
(aka Houston Industries), TXU (aka Texas Utilities) and
the others who had economically snipped California’s wires
knew they could count on Dubya, who as governor of the Lone
Star State had cut them the richest deregulation deal in
America.

Meanwhile, the deregulation bug made it to New York, where
Republican Gov. George Pataki and his industry-picked utility
commissioners ripped the lid off electric bills and relieved
my old friends at Niagara Mohawk of the expensive obligation
to properly fund the maintenance of the grid system.

And the Pataki-Bush Axis of Weasels permitted something
that must have former New York Gov. Roosevelt spinning in
his wheelchair in Heaven: They allowed a foreign company,
the notoriously incompetent National Grid of England, to
buy up NiMo, get rid of 800 workers and pocket most of their
wages—producing a bonus for NiMo stockholders approaching
$90 million.

Is tonight’s blackout a surprise? Heck, no, not to us in
the field who’ve watched Bush’s buddies flick the switches
across the globe. In Brazil, Houston Industries seized ownership
of Rio de Janeiro’s electric company. The Texans (aided
by their French partners) fired workers, raised prices,
cut maintenance expenditures, and click! the juice
went out so often the locals now call it “Rio Dark.”

Californians have found the solution to the deregulation
disaster: Recall the only governor in the nation with the
cojones to stand up to the electricity price fixers. And
unlike Arnold Schwarzenegger, Gov. Gray Davis stood alone
against the bad guys without using a body double. Davis
called Reliant Corp. of Houston a pack of “pirates”—and
now he’ll walk the plank for daring to stand up to the Texas
marauders.

So where’s the president? Just before he landed on the deck
of the Abe Lincoln, the White House was so concerned about
our brave troops facing the foe that they used the cover
of war for a new push in Congress for yet more electricity
deregulation. This has a certain logic: There’s no sense
defeating Iraq if a hostile regime remains in California.

Sitting in the dark, as my laptop battery runs low, I don’t
know if the truth about deregulation will ever see the light—until
we change the dim bulb in the White House.

Greg
Palast is the author of the bestseller The Best Democracy
Money Can Buy (Penguin USA), and the worstseller Democracy
and Regulation, a guide to electricity deregulation published
by the United Nations (written with T. MacGregor and
J. Oppenheim).